Reproduced with permission from Securities Regulation & Law Report, 48 SRLR 1583, 08/08/2016. Copyright 姝
2016 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
ENFORCEMENT
BNA Insights: Statute of Limitations for Disgorgement Claims in SEC and CFPB
Enforcement Actions
BYMATTHEW T. MARTENS,BENJAMIN NEADERLAND,
AND JARED B. COHEN
In a landmark May 26, 2016 decision, the U.S. Court
of Appeals for the Eleventh Circuit became the first
appellate court to rule that Securities and Exchange
Commission (‘‘SEC’’) actions for disgorgement are sub-
ject to a statute of limitations. In that case, SEC v. Gra-
ham, No. 14-13562 (11th Cir. March 26, 2016), the court
held that disgorgement claims, not just civil monetary
penalties, are subject to the five-year limitations period
of 28 U.S.C. § 2462. This holding, if adopted by other
courts, could significantly decrease the financial expo-
sure faced by targets of SEC enforcement actions. In
addition, the decision could provide a defense against
disgorgement claims in actions brought by the Con-
sumer Financial Protection Bureau (‘‘CFPB’’).
Supreme Court: Gabelli v. SEC
Section 2462 provides that ‘‘[a]n action, suit or pro-
ceeding for the enforcement of any civil fine, penalty, or
forfeiture, pecuniary or otherwise, shall not be enter-
tained unless commenced within five years from the
date when the claim first accrued.’’ The U.S. Supreme
Court’s 2013 decision in Gabelli v. SEC held that § 2462
applies to SEC actions seeking penalties and further
held that a claim accrues (and thus the limitations pe-
riod begins to run) when the conduct giving rise to the
claim occurred. (Gabelli v. SEC, 133 S.Ct. 1216 (2013).
The Court rejected the SEC’s argument that the claim
should only accrue when the fraud was discovered, not
when it occurred.) No discovery rule applies to toll the
running of the limitations period. The Court in Gabelli
tacitly left open the question of whether § 2462 may ap-
ply similarly to enforcement actions seeking equitable
relief, including disgorgement and various forms of in-
junctive relief. (Id. at n.1 (‘‘The SEC also sought injunc-
tive relief and disgorgement, claims the District Court
found timely on the ground that they were not subject
to § 2462. Those issues are not before us.’’).)
Eleventh Circuit: SEC v. Graham
In Graham, the SEC argued that, under Gabelli and
by its own terms, § 2462 does not apply to enforcement
actions seeking equitable relief. After the five-year limi-
tations period had already run against the Graham de-
fendants, the SEC sought relief in the form of (1) a de-
claratory judgment that the defendants had violated
federal securities laws, (2) a permanent injunction en-
joining them from violating those laws in the future,
and (3) disgorgement of illegally-obtained profits. (SEC
v. Graham, No. 14-13562, Opinion at 2-3 (11th Cir.
March 26, 2016).) As noted in an earlier article, the dis-
trict court in Graham held that § 2462 restricts the
SEC’s jurisdiction to seek disgorgement, injunctive re-
lief, or any other remedy that operates in effect—
regardless of formal title or label—as a ‘‘civil fine, pen-
alty, or forfeiture, pecuniary or otherwise.’’ (See Benja-
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